Sotherly Hotels Baby Bond Purchase

Last week when we wrote about the new Sotherly Hotels new 7.25% baby bonds being issued with a 3 year maturity we stated we planned to purchase shares as it is not often you get a decent issue with such a short maturity date.

We did purchase 200 shares on Friday at $25.55.  We had an order in for 500 shares at $25-$25.10, but with little volume trading we moved (2) 100 share orders up to $25.55 to see if there were actually shares available–there were a few and we filled the 2 orders.  We did not re-enter orders for another 300 as we thought they might be available today at a better price.

Today shares are trading at $25.70–around 4 or 5,000 shares this far.  Honestly we don’t think these will be trading much cheaper in the days ahead–the issue is too good–underpriced.

Note that the issue has an optional redemption period in 1 year so they could be redeemed at that time–thus it has a immediate call risk–BUT the early call would be at 101% plus accrued interest so at this moment the call risk is 45 cents.  This means the yield to worst would be in the 5.5% area if early called.

We will lay back for a few days and see if we can garner a better price, although as mentioned above we don’t think it will get too much better.

17 thoughts on “Sotherly Hotels Baby Bond Purchase”

  1. Hi Tim-
    I have watched the price action on this one for two days. I now agree with you- it was mispriced. A nice yield for a 3 yr. hold.

    1. I should have mentioned that even if called after 1 yr. that the yield is attractive.

      1. Yes–even if the yield to worst is just 5.5% with the early call that isn’t too bad and only God knows where rates will be in a year.

    1. Their long term debt and and the fact that their recent quarter had negative net income is a little concerning to me. The short term debt is definitely manageable.

    2. Hi Rick-Yes I always read AT–although honestly for the most part his stuff isn’t actionable for me. I am looking more to buy and hold while AT and some other preferred writers are looking for arbitrage opportunities or shorter term flips–fine if you have the time, but my experience is that on a long term basis all the screwing around doesn’t add too much value and at some point in time you get creamed by a bad move–slow and steady will win the race (over time).

  2. DR–yes all financials always bear watching, but with the 3 year maturity and the nice 7.25% coupon and being debt (versus preferred) means there are a lot of dividends that would have to get cut before any threat to the debt issues.

    1. Hi Tim, First time writing so let me start with a big thank you for your site. Privilege to be here. Re SOHOK, have to confess to balking on this last week. The ~$6.35M in common dividends provides a decent buffer though of concern was the need for SOHO to refinance nearly 50% of their maturing mortgages in the next 3-4 years which coincides with the term of the note. If I’ve used my slide rule correctly they appear to be sitting at ~81%+ LTV overall on their 12 properties. Just the same, still may put a limit order in in the mid 25s as the hotels, while few in number are well-located premier properties.

      1. Hi Jerry–you have looked deeper than I have–I will try to do a deeper dive in the next week or so. If one were to assume that they had to refi at 1 or even 2% higher rates would it be a killer? I think they could deal with and the common divi as well as the preferred divi provides a pretty good level of safety.

          1. Thanks Jerry–will give me a little light reading for tonight. I have been spinning my wheels all day long on technical website issues and looking at mortgage stuff will be a snap compared to trying to work on Javascript etc–for an old 64 year old.

  3. SBBC (which is listed on the short/medium term maturity issues page) is another issue along these lines (good yield, near term maturity). It matures on June 1st of 2019, has an 8.25% yield at par ($25/share), and currently trades around $24.66/share. I am going to try and pick up a few shares today. These are senior notes. Basically, I am taking the position that Scorpio Tankers will still be in business and paying distributions on June 1st, 2019 and willing to take a small risk of purchasing a few shares.

    1. Hi Wedgehead–I agree that those notes look tempting and I have looked at them. But with the common at 2.36 I stay away. My experience in the past is these normally work out ok–but I don’t sleep well with them.

      1. Tim, when in doubt, I go with the old reliables as I need to finish off my cash. I bought some more ABRN at $25.39 today and more OSBCP at $10.39 . I just dont trust this SOHO outfit. Wasteful outfit going through all the underwriting expense for a 1-3 yr loan. AHT-D is all I can stomach in the hospitality reit, and my love isnt very passionate there either.
        I noticed in my brokerage account my GDL-C showed up (4% puttable/callable, adjustable to 6%) . I still havent figured out how to buy them, but they are sitting there to be bought when I figure it out, I guess.

        1. Hi Grid–I am up to the gills with ABRN — maybe I will pick up some Old Second–had it once but don’t now. I’ll let you deal with AHT–as I am working daily on the website data input I see the charts for each and every perpetual and it isn’t pretty. So many of the low coupon issues are off 1.5 to 2 bucks since December–sickening loss of a year of dividends–glad I am short term focused.

          1. I dont trust the finances and external management of AHT. But bottom line, D did not drop under par during Taper Tantrum. It did have a good scare when there was worry they couldnt get their debt rolled over in early 2016, but they did. I could take it or leave it personally. I really only pay attention to about 50 preferreds, and they largely have not moved in price. I am definitely not seeing any price breakdown in my issues owned. I suspect the new issued perpetuals have got hit hard though. The market is definitely being kinder to past call, term dated, and adjustable issues.

        2. Hi Gridbird, From Gabelli re GDL-C: The Fund expects to mail subscription certificates evidencing the Rights and a copy of the prospectus for the Offering to record date shareholders beginning on February 16, 2018. Inquiries regarding the Offering should be directed to the Fund at 800-GABELLI or 914-921-5070. Record date shareholders being the GDL-B OORecord Feb 14.

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